Personal Flight
In February of 2020, the news of the death of Dr. Li Wenliang reverberated like an earthquake through the Chinese social web. His death affected millions of people in China. Among them was my future wife @yunnie, who resolved to leave the country as soon as she could. Later that year she did so, during the height of a global pandemic, but it was possibly her last chance before it would become extremely difficult to leave China at all for years. You can read another Hiver's experience of remaining in China after this time here:
https://hive.blog/hive-174578/@mobbs/life-in-chinese-lockdown-part-1-civilization-has-fallen
https://hive.blog/covid19/@mobbs/life-in-chinese-lockdown-part-2-the-new-normal
She was left with a problem though - her apartment and all of her belongings were still in China. She had to leave with just a little money and what items could fit in her suitcase. It was possible to get her family to sell her belongings on her behalf, but with a limit of merely $50,000* per year per person, how could she possibly get her savings and the proceeds from selling her apartment out of the country? She had worked for several years to pay the mortgage - it is not something to give up lightly.
* Incidentally this limit has sharply dropped recently, and it is now even harder to get money out of China. Also note that you will see different figures online. The $50,000 limit was technically a limit on purchasing foreign currency with CNY. If you already have foreign currency, you can transfer more out per year, but most Chinese nationals will have their money in CNY and this is the practical limit.
Capital Flight
Through our research, we found 3 basic options that people can use to get large sums of money out of China
1. Leveraging Family
While one person could only transfer up to $50,000, a person may have family members who can assist. If you transfer $100,000 each to several trusted family members, they can each make a $50,000 transfer out to a Western bank account in December, and then a second transfer in January, each using up their limit for the 2 year period.
There are several problems with this approach. If you only have a couple of family members who can do this for you, for example your parents in a one child family, you still can only send up to $300,000 this way. Another issue is that it exhausts your family members ability to get money out as well - even if they want to stay in China they may for example want to have foreign investments. And perhaps most importantly, this approach will raise so many anti-money-laundering flags when you do get the money out. Indeed it almost is a form of money laundering, though there are no proceeds of a crime. Good luck buying a house abroad if you use this approach.
2. Peer to Peer Matching
This is where you find someone who is in the opposite situation as you - they want to get money into China (for example, proceeds of a foreign investment) while avoiding capital controls. Once you find someone who is an ideal match, you transfer money to their bank in China and they transfer western currency to your bank in a western country.
This requires a very high level of trust - for most people it is simply not an option as they do not have a sufficiently trustworthy contact in the opposite circumstances. For those who attempt to use this route with strangers - there is a very high risk of being scammed. They may simply renege on their part of the deal, or perhaps find a way to reverse it.
3. Crypto
Finally, the crypto approach. First you buy crypto in China with CNY. Then you sell the crypto in a western country. Realistically the crypto of choice will be Bitcoin, because buying anything else in large quantities is difficult. You could also try Ethereum, but it doesn't offer an advantage for this use case, and USDT is possible but I wouldn't touch that with a 30 foot pole.
I won't pretend that this is super simple or without its own problems. Firstly you will likely pay a high premium since buying cryptocurrency is illegal in China. Secondly you may need to do it in multiple steps or you may take on volatility risk if you attempt to transfer it all at once. Thirdly, it may only be an option for those with sufficient technical knowledge and awareness. If you do know what you're doing, it's quite easy to avoid the risk of being scammed while buying Bitcoin - however without that level of knowledge it should be considered risky.
Life Changing Value
Cryptocurrency opens up the possibility of getting money out of China and other totalitarian states for potentially millions of people for whom it is otherwise impossible or an extreme challenge.
Does this justify $400 billion in market cap for the Bitcoin network? No, absolutely not. Does it justify the scams and the grift and the multitude of worthless meme tokens and projects without substance? No. The environmental damage of proof of work? Nope.
For most people, crypto may not offer any value at all, at least not in a way that is obvious to them today. But for some people, in some not so rare circumstances - crypto provides literally life changing value. My wife is proof of that.
This is a heartfelt read for me cos I fear my country is just few steps away from the situation China is in ATM. Nigeria has been runned down so badly that crypto usage is crime to the government cos they have no power and to further weaponize poverty with it.
The solution with Bitcoin justifies that Market Cap in my opinion, especially if you look at the many ways it's getting people like your wife and myself out of some difficult corners. Maybe $400Billion is a bit humongous, still, even at $1Trillion Market Cap, I'll still take it over any other option and bare the risks associated with it as you stated.
Cheers @demotruk 😊
….“but for some people, in some not so rare circumstances - crypto provides literally life changing value”….
This is the category I want to belong now not the first one. I never understood the concept of crypto but I’m beginning to get a hang of it and I realized I’ve been asleep all along.
I am sad about what happened in China under their communist governance, they haven't control over their money and the government decides what to do. Crypto is such a lifesaver for them, it is decentralized therefore Chinese government banned it since they have no control over cryptocurrency.
Greetings, @demotruk!
Thank you for your very valuable article! I enjoyed it greatly, particularly because it presents such a clear example of the sterling use-case for bitcoin when it comes to personally escaping oppressive capital controls.
However, I was completely startled by some of your closing remarks:
The fact that you and your wife found it to be of life-changing value seems to me to absolutely and strongly justify the value of the Bitcoin network all on it's own, but that of course is not the only use-case for bitcoin. This excellent paper from Fidelity provides an astute analysis of the extreme value of Bitcoin as a monetary good and a store of value asset. You and your wife would do well to retain as much of the assets you've secured through the use of bitcoin on the Bitcoin network in order to preserve them through the present global financial upheaval.
I am in complete agreement with this statement; and it is also a clear clue as to the value of BTC remaining permanently head and shoulders above most other "pump and dump" crypto projects, although there are undoubtedly excellent use-cases for certain select other crypto projects. But bitcoin is clearly the one for asset preservation, portability, and freedom from state theft and interference.
And here we again very strongly diverge in our understanding of the value of BTC. The very strong Proof of Work requirement is in reality one of Bitcoin's greatest strengths, as it powerfully secures the network. Not only that, but because of a positive alignment of incentives, it also serves to hasten the development of improved sources of energy, uses energy that would otherwise be simply lost as heat, and stabilizes power grids around the world. I would encourage you to do some reading on the subject and consider revising this inaccurately negative opinion about proof of work. It is a myth promulgated by the "powers that shouldn't be" because they are threatened by honest money.
The only reason that Bitcoin in particular was used is because it is presently the most widespread in acceptance, liquidity and availability. It has that mostly from incumbency and network effect advantages over the alternatives. If Ethereum or Litecoin or Hive gained the network effect lead then those would have been used instead. I don't believe Bitcoin has a long term future in the face of technically superior alternatives, but I don't need to believe it does in order to make use of Bitcoin, make use of crypto, or to use Bitcoin in demonstrating the point that crypto in general has clear value.
Thanks for your thoughtful response. Your points are certainly valid; however, (along with every BTC maximalist) I think your estimation of the future of Bitcoin will be proven wrong by its future history. And I'm very glad that you've found it useful in the present for the personal sake of you and your wife!
This post brings back so many memories as I remember the videos from that doctor in the runup to the pandemic. I found out about it on a Chinese US expat forum in late 2019. No one would listen to me here when I tried to warn them to prepare, so I stocked up myself. Dr. Li Wenliang saved countless lives and I'm forever grateful to him.
Concerning crypto and the complications (and fees) of moving money around using the SWIFT payment system when I travelled in 2017, would have been easier and cheaper than using that system. As long as you know what you're doing, crypto allows you to get things done and empowers the individual (which some people don't want).
Finally, the crypto approach.
I got a question in regards to this. How are you declaring this crypto in the country you are selling it in? I mean officially it is your money that you just transfered using crypto, right? But do you have to show proof of how you got it (i.e. money laundering)? And how difficult are the authorities making this for you?
When we decided to purchase an apartment here, we provided them with logs and details of how we got the money in the first place (selling an apartment), the transfer of crypto, records of selling it on an exchange.
It's not ideal but it's a requirement for AML when buying a house here. We were not given any difficulty, but we did provide more records and details than you'd typically be expected to if we had made a bank transfer.
Personally I think AML requirements are bullshit and don't prevent money laundering. But we don't have much of a choice but to comply with them when purchasing an apartment. Crypto thankfully didn't cause a problem for us here. It's possible some lawyers would be more nervous accepting proceeds that have been tainted by crypto though.
AML requirements are indeed nonsense. It's all governmental regulations with the intent to restrict money laundering, but the impacts are mainly felt by the regular folks. There are numerous instance of banks who flaunt AML requirements till they get caught and slap with a fine. And this are only the ones who get caught.
Perhaps you should have reach out to a mortgage broker as they will be able to help you navigate the process as they know what the banks are looking for. Hopefully now this hurdle is crossed, you both can finally sit down together and enjoy the view :)
okay, happy to hear that it worked out for you! But yes, in my country I think this would be a nightmare...
Cryptocurrencies is indeed a life changing miracles. Am glad you are able to find the basic option that brought balances back to the world . Me knowing crypto had been a blessing to me and my family " the little cent that turns into a millions Dollars" crypto is a blessing to the world .
Wish you all the best with your future wife
What happened in China, can happened anywhere, the method above are all riskly and after the whole transaction you won't have the exact amount you put into it, i don't know about the leveraging family, the peer to peer system is good and has it own disadvantage crypto on the other hand could've been the best method but it take someone with technical knowledge to go into that, and not everybody are familiar with the whole crypto transactions
The rewards earned on this comment will go directly to the people( @demotruk ) sharing the post on Twitter as long as they are registered with @poshtoken. Sign up at https://hiveposh.com.
Muy bueno lo explayado, gracias por compartir, te dejo mi voto y te sigo, saludos.